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[2011] ZAGPJHC 228
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Steyn and Another v karee kloof Melkery (Pty) Ltd and Another (2009/45448) [2011] ZAGPJHC 228 (30 November 2011)
REPORTABLE
SOUTH
GAUTENG HIGH COURT, JOHANNESBURG
CASE
NO: 2009/45448
DATE:31/11/2011
In
the matter between:
STEYN:
JAMES
......................................................................................................
First Plaintiff
STEYN:
DEREK
….............................................................................................
Second
Plaintiff
and
KAREE
KLOOF MELKERY (PTY)
LTD
..............................................................
First Defendant
VISSER:
THEUNS
LOUIS
..............................................................................
Second
Defendant
JUDGMENT
PETER
AJ
[1]
The issue in this trial action is whether or not the first and second
plaintiffs validly entered into an agreement in terms
whereof the
parties, and in particular the first and second plaintiffs,
compromised their claims and settled their disputes with
the first
defendant, arising from a written agreement between the plaintiffs
and the first defendant. The validity of the agreement
is to be
tested by reference to both compliance with entrenched formalities
imposed by the parties, known as the Shifren principle
and by
determining the limits of the Shifren principle.
[2]
At all times material to this action and up until 2007, the Steyn
family lived on the farm "Stadigfontein" on which
a dairy
farming business operated. The dairy farming business appears to have
been conducted by Mr James Steyn, the first plaintiff
("Mr Steyn
Snr") in partnership with his son Mr Derek Steyn, the second
plaintiff ("Mr Steyn Jnr"). The land
upon which the dairy
farming business was conducted was owned by Mr Steyn Snr and his
wife, Mrs Dolores Steyn ("Mrs Steyn").
As a result of
contact through Mrs Steyn's sister, the second defendant ("Mr
Visser"), commenced negotiations in 2007
to purchase from the
Steyns both the land and the farming business. On 15 May 2007, two
written agreements of sale were concluded.
The first concerned the
sale of the land by Mr Steyn Snr and Mrs Steyn to a company Autumn
Storm Investments 384 (Pty) Limited,
represented by Mr Visser. The
second agreement was the sale of the dairy farming business by Mr
Steyn Snr and Mr Steyn Jnr to the
first defendant company,
represented by Mr Visser. Mr Visser signed as surety and co-principal
debtor for the first defendant.
No issue arises from the first sale
agreement in respect of the land.
[3]
In terms of the sale of business agreement, the first defendant
purchased the dairy farming business from the first and second
plaintiffs for the sum of R1 809 250,00. A deposit of R1 million was
payable on or before 1 July 2007. The balance was to be paid
in
thirteen monthly instalments of R62 250,00, commencing on 1 August
2007. Thereafter each instalment was to be paid on the first
day of
each following month. The agreement expressly recorded that no
interest was payable on the price. The business was sold
as a going
concern and expressly included a herd of livestock, a feed mixer, a
tractor, a wagon, approximately 700 tons of animal
fodder, the
goodwill and the name of the business. The effective date of the
agreement was midnight on 30 June 2007. The livestock
was ascribed a
value of R1 444 400,00 and the 700 tons of fodder agreed at the sum
of R120 000,00. The agreement included an express
provision for the
retention of ownership in favour of the sellers of the livestock
until payment of the full purchase price had
been made. Clause 15.1
of the sale of business agreement recorded that the agreement was the
whole agreement between the parties
and no agreement in conflict with
the provisions thereof was to be binding on the parties unless it was
reduced to writing and
signed by all the parties. The written
agreement itself was signed on behalf of the sellers by only Mr Steyn
Snr.
[4]
Prior to the conclusion of the agreement and on 1 April 2007, a
payment of R225 000,00 was made in cash by Mr Visser.
[5]
The transaction was further complicated by the fact that, prior to
the conclusion of the two agreements and in anticipation
thereof,
during or about mid April 2007, Mr Visser caused approximately 200
further dairy cows to be brought onto the farm. From
that time up
until the effective date of the agreement, these cows were fed and
managed by the Steyns who were required to recoup
the cost of
maintaining and the upkeep of the animals from the revenues generated
from their milk yield. In this regard it appears
that Mrs Steyn was
burdened with the task of keeping track of and accounting for the
feed consumption of these animals and their
production output. In
addition, Mr Visser's brother came to stay on the farm to familiarise
himself with the business as it seemed
he was to be involved in its
future day to day management.
[6]
On 1 July 2007, a further payment of R800 000,00 in discharge of the
purchaser's obligation to pay the initial deposit of the
purchase
price was made. On 3 July 2007 and 8 August 2007 respectively, two
payments of R62 250,00 were made.
[7]
On 21 August 2007, Mr Visser addressed a letter to the Steyns
recording a number of complaints. The complaints are summarised
as
follows: the land was purchased at almost twice the highest going
price per hectare in the area, the general condition of the
farm was
below average and intensive maintenance was required for fencing,
gates, paths, houses and buildings which were in a poor
condition,
the inadequacy of grazing pastures giving rise to the need to
purchase feed and the performance of both the tractor
and the feed
mixer. The letter of complaint was taken up by attorneys Liebenburg
Malan Liezel Horn Inc for the Steyns. This led
to discussions
concerning the disputes and in particular accounting issues arising
from the additional cows brought onto the farm
prior to the effective
date.
[8]
On 19 September 2007, a written agreement of settlement was concluded
between the first and second plaintiffs and the first
defendant,
represented by the second defendant ("the first settlement").
The first settlement was signed by Mr Steyn
Jnr on behalf of the
seller. Mr Steyn Snr's signature was absent from the document. The
first settlement provided for the return
of the feed mixer in return
for a credit, a reduction of the price of the tractor to R20 000,00,
a credit in respect of the slaughter
of a bull and an undertaking by
the sellers to rectify the shortage of fodder delivered as at the
effective date. The joint dairy
farming from the second half of April
to the end of June 2007 was acknowledged and there was an undertaking
to credit the first
defendant for duplications of amounts charged and
errors in accounting.
[9]
On 5 and 7 November 2007, the first defendant made two further
payments each of R30 538,14.
[10]
The first settlement did not bring about an end to the dispute
between the parties. Later in November 2007 another dispute
developed
between the parties when Mr Steyn Jnr discovered that Mr Visser had
sold 23 animals and was attempting to sell further
livestock. This
was alleged to be in contravention of the rights of the plaintiffs by
reason of the express terms of the sale which
provided for the
retention of ownership in the animals until the full purchase price
had been paid. This dispute in turn gave rise
to urgent proceedings
in the Vereeniging Magistrates' Court. The deponent to the founding
affidavit was Mr Steyn Jnr. Both the
first and second plaintiffs were
represented in these proceedings by a new firm of attorneys, De Bruyn
& Vennote. By this stage,
Mr Visser had engaged the services of a
firm of attorneys Miller & Nolte Inc who thereafter dealt with
the matter. Settlement
discussions were held at De Bruyn &
Vennote's offices on 6 December 2007. On the following day a payment
was made of R142 000,00
in cash to Mr Steyn Jnr, apparently in
settlement for livestock which had been sold.
[11]
At that stage the settlement negotiations dealt with a number of
disputes. The first defendant had complained that there was
as
shortfall of sixteen heifers and the best milk cow was absent from
the herd that had been handed over. The purchaser raised
disputes
about the defective condition of the feed mixer and the tractor.
Complaints were made about the overgrazing of the property
leased out
to a neighbouring farmer and the shortage in the quantity of fodder
at the date of handover. According to the evidence
of both parties,
at some stage it was determined that Mr Steyn Jnr would be the only
member of the Steyn family present at meetings
held with the
attorneys and Mr Visser.
[12]
In any event, on 7 December 2007, attorneys De Bruyn & Vennote
sent a settlement offer by way of telefax on behalf of the
first and
second plaintiffs. The letter was addressed to the first defendant's
attorneys. The letter proposed that the first defendant
pay to the
plaintiffs the sum of R300 000,00. The sum of R300 000,00 was to bear
interest at the rate of 15,5% per annum from the
date of signature of
the settlement to the date of final payment, such interest to be
calculated on the outstanding balance. The
balance was to be paid by
way of monthly payments of R25 000,00 together with the interest with
the first payment to be made on
or before 7 January 2008. The offer
expressly recorded that the settlement agreement ("the second
settlement") was not
in novation of the existing purchase
agreement to the extent that it did not conflict with the provisions
thereof. Over and above
the payment of R300 000,00 a contribution to
the plaintiffs' legal costs in the sum of R5 000,00 was required. The
other terms
of the offer are not relevant for the present purposes.
[13]
On 12 December 2007, the first defendant's attorneys sent a letter by
telefax to the plaintiffs' attorneys confirming that
the settlement
proposal set out in the letter of 7 December 2007 was acceptable. The
letter recorded that R100 000,00 had been
paid on 11 December 2007 to
the plaintiffs and the capital balance was to be altered to the sum
of R200 000,00. The letter recorded
that in all likelihood the
balance of R200 000,00 would be paid before 7 January 2008 to
finalise the matter and if such balance
was not paid on or before 7
January 2008, then the provisions relating to the repayment of the
balance at the rate of R25 000,00
per month would apply.
[14]
In the event, the payment of R100 000,00 was only reflected in the
plaintiffs' bank account on 13 December 2007. A further
payment of
R210 000,00 was paid into the plaintiffs' bank account on 14 December
2007.
[15]
On 14 January 2008, the plaintiffs' attorneys wrote to the
defendants' attorneys recording their understanding that the
defendants
had paid the full outstanding balance as referred to in
their letter of 7 December and in that sense the matter was
finalised.
The letter called for payment of the R5 000,00 in respect
of the legal costs so that the matter could be finalised. On 1 April
2008, a letter was addressed to De Bruyn & Vennote enclosing
payment of a cheque of R5 000,00 in respect of the legal costs
in
full and final settlement. It is unclear to me whether the payment
was in fact made. It is not necessary to make any finding
in this
respect as R310 000,00 had in fact been paid. This more than covered
the capital, interest and costs required in terms
of the second
settlement agreement.
[16]
Thereafter for almost a year and a half, the disputes appear to have
been put behind the parties. However on 16 September 2009,
a letter
was sent by attorneys Zehir Omar, on behalf of the plaintiffs,
demanding payment of the sum of R410 820,72 claimed as
the balance
outstanding in respect of the sale of business agreement.
[17]
The plaintiffs' summons was based on the sale of business agreement
dated 15 May 2007. The claim alleged the written terms
and default on
the part of the first defendant having failed to make timeous and
proper payment of the instalments of R62 250,00
per month. The
summons claimed the amount of R410 820,72 due and payable. This
amount was later amended at trial to an amount of
R413 673,72. The
plaintiffs' calculation of the amount outstanding gave credit for R1
million paid by way of deposit, the two instalments
of R62 250,00,
the two payments of R30 538,14 made in November 2007 and a credit was
given for the R210 000,00 paid on 14 December
2007. The formulation
of the plaintiffs' claim ignored the first and second settlement
agreements.
[18]
The defendants' plea originally relied on the denial that the amount
due under the agreement had been paid and asserted the
existence of
the first settlement agreement. On the second day of trial an
amendment was sought and granted which introduced, as
an additional
defence, the second settlement agreement.
[19]
It is common cause between the parties that there existed a myriad of
disputes which I have enumerated above. Witnesses differed
as to the
merits of the various disputes but it was common cause that the feed
mixer was returned to the plaintiffs and a sum of
R277 000,00 had
been paid to the plaintiffs by the first defendant for which the
defendants have not been given credit. The reason
for this, according
to the evidence of Mrs Steyn, was that these payments were
appropriated to other claims that had arisen between
the parties
outside the written sale of business agreement, relating to the first
defendant's livestock that had been put on to
the farm in April 2007
and matters ancillary thereto. It was also further common cause that
there was a duplication of R14 830,90
to which the first defendant
was entitled in respect of such other transactions. The plaintiffs'
evidence, given by Mrs Steyn,
did not dispute that the grazing
pastures on the farm had been depleted or that the fodder that was
delivered was less than 700
tons. Mrs Steyn attributed the cause to
the defendants having brought an additional 200 cows onto the farm.
It was also common
cause that the feed mixer had been returned to the
plaintiffs.
[20]
The plaintiffs' challenge to the settlement agreements was that they
did not comply with the formalities in clause 15.1 of
the sale of
business agreement.
The
Shifren principle
[21]
The principles of freedom of contract and that contracts must be
enforced (embodied in the Latin expression pacta sunt servanda),
or
sanctity of contract, are fundamental to the South African Roman
Dutch common law of contract. Prior to the decision in SA Sentrale
Ko-op Graanmaatskapy Bpk v Shifren en andere
1964 (4) SA 760
(A), in
the context of agreements which entrench their provisions with a
clause prescribing formalities for the subsequent variation
of the
terms of the earlier agreement, these principles were applied with
equal vigour to both sides of the debate over the question
whether
the original contract prescribing formalities should prevail over a
later contract executed by the parties without observing
the
formalities, see Hahlo
(1965) 82 SALJ 4
and Reinecke and Van der
Merwe
(1964) 28 THRHR 154.
Ultimately in Shifren, the application of
these principles has recognised that, through the exercise of freedom
to contract, parties
can restrict their freedom to contract and their
autonomy. This they do by prescribing that any future agreement to
vary or alter
the terms of a contract, must comply with prescribed
formalities. Where such provision is itself entrenched, the original
agreement
is incapable of being validly altered without complying
with such prescribed formalities. This has become known as "the
Shifren
principle". The Shifren principle has survived
constitutional challenge in recent times, Brisley v Drostsky
2002 (4)
SA 1
(SCA). As pointed out in Brisley, at 11B -H, Shifren gave
greater weight to the parties' original exercise of contractual
freedom
than to their capacity to undo their original choice without
limitation. In so doing, the court made a policy choice between two
opposing standpoints where there were weighty arguments on both
sides. It did not necessarily come to one answer that was right
in
absolute terms with the other answer being wrong.
[22]
The policy in Shifren was that in circumstances where the parties
have incorporated a formalities clause which itself is entrenched
against an oral variation, there was no reason to find why one party
cannot hold the other party thereto. The policy is one of
certainty
and to give effect to the intention of the parties, through such a
clause, to guard against disputes and difficulties
of proof which can
arise in oral agreements, at Shifren 766 G-H.
[23]
Although the enforcement of the Shifren principle may cause hardship
in particular cases, such hardship must yield to the certainty
of
principle in the law. However when faced with an entrenched
formalities clause, the courts are astute to examine the scope of
a
future agreement governed by such formalities. Where the entrenched
formalities apply to a future variation of the terms of the
original
agreement, such formalities have been held not to apply to an oral
cancellation, Impala Distributors v Taunus Chemical
Manufacturing Co
(Ptty) Ltd
1975 (3) SA 273
(T), an oral waiver Phillips & another
v Miller & another (2)
1976 (4) SA 88
(W), or to a waiver by a
conduct, Van As v Du Preez
1981 (3) SA 760
(T). Entrenched
formalities clauses must be restrictively interpreted because they
curtail common law freedom of contract, Randcoal
Services Ltd and
others v Rand Gold and Exploration Co Ltd
[1998] ZASCA 45
;
1998 (4) SA 825
(SCA) at
841 F. That a restrictive interpretation is required, on the grounds
of a curtailment of freedom of contract, of a clause
which is valid
because effect is given to the principles of freedom of contract
seems contradictory. This highlights the paradox
considered in
Shifren which is referred to in the minority judgment of Cameron JA
in Brisley at 34 B - C.
[24]
As remarked by Hutchison
(2001) 118 SALJ 720
, courts have frequently
felt uncomfortable about applying the Shifren principle and have
resorted to all sorts of ingenious stratagems
to avoid doing so. I am
mindful of the observation that the courts have frequently in the
past done so on doubtful grounds, Brisley
at 12A.
[25]
In the present case, three questions arise, in respect of each of the
settlement agreements. First, whether or not such settlement
agreement was one within the wording of the scope of the entrenched
formalities clause. Secondly, if such a requirement is present,
whether or not there has been compliance. Thirdly, if there has not
been compliance, whether, notwithstanding such non compliance,
the
Shifren principle should be enforced, or the settlement agreement
nevertheless be given force and effect. This third question
involves
an examination of the limits of the application of the Shifren
principle.
The
first settlement
[26]
In respect of the first settlement agreement, there was no dispute
that this settlement agreement was one within the wording
of the
scope of the entrenched formalities clause. That is to say, the
parties were agreed that for it to be valid, it had to comply
with
the formalities of clause 15.1 of the sale of business agreement. It
had to be in writing and signed by the parties.
[27]
The agreement had been reduced to writing. The dispute between the
parties was whether or not the first settlement agreement
was
compliant by reason of the fact that it had been signed on behalf of
the sellers by only Mr Steyn Jnr. The absence of Mr Steyn
Snr's
signature was contended by the plaintiffs to be fatal to its
validity.
[28]
In the context of the alienation of land, a statutory formality is
imposed requiring an alienation of land to be in writing
and signed
by the parties thereto or their agents authorised in writing. In this
context, it has long been held that the signature
of one partner
serves as a signature as principal of all the partners in the
partnership. That partner is not treated merely as
an agent, whose
authority is required to be evidenced in writing, Potchefstroom
Dairies v Standard Supply Co
1913 TPD 506
, Miller en ander v Pienaar
1968 (3) SA 195
(A). There is no reason to confine this principle
only to formalities imposed by statute and not to extend this
principle to formalities
agreed by the parties.
[29]
Since the first and second plaintiffs operated the business in
partnership, the signature of the first plaintiff to the original
sale agreement sufficed to bind the second plaintiff thereto. The
signature of the second plaintiff to the first settlement agreement
was sufficient to satisfy the formalities of clause 15.1 of the sale
of business agreement. Thus the first settlement complies
with the
entrenched formalities clause.
The
second settlement
[30]
The court in Shifren was concerned with a clause prescribing
formalities for future variations of the terms of the agreements.
Such clauses have commonly become known in commercial practice as
"non-variation" clauses. No doubt, by reason of the
restrictive interpretation given by the courts over the years to the
scope of such clauses, their wording is commonly expressly
formulated
to include waivers and cancellations. I have deliberately chosen to
use the terminology "entrenched formalities",
when
describing such a clause, as the wording of the clause in the present
case extends far beyond mere variations of the terms
of the original
agreement.
[31]
The first question in relation to the second settlement is whether or
not the second settlement is an agreement which falls
within the
scope of the entrenched formalities clause.
[32]
Ms Lundstrom, who appeared for the defendants, relied on Buffet
Investments Services (Pty) Ltd and another v Band and another
[2009]
JOL 24368
KZD as authority for the proposition that an oral agreement
of compromise is not an agreement which is subject to the formalities
of a non-variation provision. Paragraph 13 of the judgment in Buffet
Investments holds that a non variation clause will prevent
waiver in
the general sense of an informal agreement to vary the contract but
that an oral waiver could still be effectual despite
a non variation
clause on the basis that the terms of an agreement were to the sole
benefit of the plaintiffs. This proposition
was based on the
authority of Impala Distributors. The Impala Distributors case is
authority for the proposition that where there
is an entrenched
provision restricting an oral cancellation of the agreement, an oral
cancellation is not possible. An oral waiver
would however be valid
but only in regard to a right which accrues in terms of the contract
exclusively to the party waiving. An
existing cause of action arising
out of a breach of contract can be waived orally. This was so held in
Impala Distributors on the
basis that Shifren did not deal expressly
with waiver and a waiver was distinct from a variation of the
contract. The distinction
between "waiver" and "variation"
is discussed by Hutchison, to which I have referred above.
[33]
The Buffet Investment case dealt with an exception to a plea alleging
an oral agreement in terms whereof the first plaintiff
agreed in full
and final settlement of the claims against the defendants to accept a
reduced payment delayed in time with different
security. This
agreement was characterised as a waiver. I am unable, with respect,
to agree with the judgment in Buffet Investments
as a correct
application of the Impala Distributors principle. First, not only was
there a standard non variation clause which
required variations to be
in writing and signed by the parties to be binding, entrenched
therein was a clause providing that no
agreement varying, adding to,
deleting from or cancelling the agreement and no waiver of any right
thereunder was to be effective
unless reduced to a non-electronic,
hardcopy, written amendment signed by means of handwritten signatures
by or on behalf of the
parties. As such, the wording of the
entrenched clause specifically excluded oral waiver. Secondly, in my
view, the agreement was
incorrectly characterised as a waiver in any
event. It was certainly not the waiver of a provision exclusively for
the benefit
of the first plaintiff. Had this been so, a waiver of
such a term would result in the term ceasing to apply. The oral
agreement
was one varying the performance obligations of the first
defendant and if effective, created new obligations different from
those
contained in the agreement. Expressed differently, this was not
a waiver in the sense of a right or provision which accrued
exclusively
to one party and having been waived was dispensed with in
its entirety. Rather it was an agreement to vary the right and the
corresponding
obligation. If the reasoning in paragraph 13 of Buffet
Investments were to be accepted, the Shifren principle would no
longer have
any application. Every oral agreement not complying with
the formalities prescribed by the parties would be given effect on
the
basis that such constituted a waiver by the party whose rights
are reduced in favour of the party whose corresponding obligation
is
reduced by such oral agreement. I find myself in respectful
disagreement with the decision in Buffet Investments.
[34]
There is authority however for the proposition that an agreement to
accept substituted performance is not a variation of the
original
agreement and, where such substituted performance has been fully
performed, this is performance of the original agreement
Van der Walt
v Minnaar
1954 (3) SA 932
(O); Telcordia Technologies Inc v Telkom SA
Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA) at 282.
[35]
The first question concerning the scope of the agreement is not
concerned with a characterisation of the agreement and determining
whether such characterisation is an agreement to vary the terms of
the original agreement. It is of little profit to attempt to
characterise the settlement agreement either as a waiver, an
agreement to release, an agreement not to enforce a right - a pactum
de non petendo, a compromise, settlement, novation, an agreement to
accept substituted performance or any other innominate contract.
The
first question is answered by determining whether or not the second
settlement is an agreement which conflicts with the provisions
of the
original sale of business agreement. This is so irrespective of
whatever label is given to the second settlement agreement.
[36]
This question is answered by looking at the effect of the second
settlement and asking whether or not the legal consequences
thereof
are inconsistent with the legal consequences of the original
agreement, prior to the execution of the second settlement.
I confess
that I do not understand the difference, other than one of semantics,
between an agreement which varies the terms of
an original agreement
and one which varies not the terms but the legal consequences
thereof.
[37]
The effect of the second settlement, is that if performed, whatever
performance obligations the seller had under the agreement
that were
the subject matter of a dispute between the parties and any further
payment obligations the defendants would have thereunder
would become
extinguished on payment of the R305 000,00 and interest due as
stipulated in the second settlement.
[38]
The legal effect of these terms is simply inconsistent with the terms
of the original agreement. That this is so is evident
by the fact
that the second settlement is pleaded as a complete defence to a
claim brought under the original agreement. That the
second
settlement conflicts with the provisions of the original agreement,
admits of no doubt. The first question must be answered
in the
plaintiffs' favour.
[39]
In relation to the second question, Mr Omar, who appeared for the
plaintiffs, argued that the settlement agreement was concluded
by the
attorneys who were not authorised to make the offer on behalf of both
plaintiffs as Mr Steyn Snr had not consulted with
them nor given them
instructions.
[40]
Lack of an agent's authority ordinarily ought to be specifically
pleaded, Tucker's Land & Development Corporation (Pty)
Ltd v
Perpellief
1978 (2) SA 11
(T). It ordinarily cannot be raised without
an amendment, Nyandeni v Natal Motor Industries Ltd
1974 (2) SA 274
(D). Although this is so, I do not intend to hold this against the
plaintiffs; the defendants introduced the second settlement
agreement
by way of amendment on the second day of trial. In any event, the
defence of lack of authority in my view must be rejected
for two
principal reasons. First, the attorneys had been acting for both
plaintiffs in the Magistrates' Court proceedings and represented
both
plaintiffs in the dispute. On that basis the attorney certainly had
ostensible authority to make the settlement proposal.
Secondly, on
the plaintiffs' evidence, the attorneys were being instructed by Mr
Steyn Jnr who was in partnership with Mr Steyn
Snr. As such, his
instructions to the attorneys were sufficient authority for the
attorneys to make the settlement offer on behalf
of both partners.
[41]
Although the letter of the defendants' attorneys dated 12 December
2007 is signed by the attorneys, the letter embodying the
offer dated
7 December 2007 does not bear a manuscript signature of its author.
The name of the attorneys is appended at the foot
of the letter in
typescript. This letter was transmitted by telefacsimile
transmission. The lack of a signature to such letter
was not
something to which my attention was drawn nor to which specific
reference was made by either of the parties' representatives
in
argument. The lack of signature is clearly a failure to comply with
the formalities. Accordingly the second question must be
answered in
the plaintiffs' favour.
[42]
The dispute is whether or not the second settlement should enjoy
efficacy and primacy over the original agreement and defeat
the
claim. This then brings me to the third question which concerns the
limits to the enforcement of the Shifren principle.
[43]
In relation to the third question, it must be noted that the Shifren
principle is established law and a part of the common
law. The
decision of the court in Shifren is binding upon me as a puisne judge
sitting as a court of first instance and, on the
authority of
Brisley, which too, is binding upon me, there is no scope for me to
reconsider the principle in the light of my obligation
to develop the
common law in the light of fundamental constitutional values in terms
of section 173 of the Constitution.
[44]
In Brisley an argument was advanced that a court should refuse to
enforce the Shifren principle where to do so would be unreasonable,
unfair or conflict with the principles of good faith. This submission
was based on a decision of Magna Alloys and Research (SA)
(Pty) Ltd v
Ellis
[1984] ZASCA 116
;
1984 (4) SA 874
(A). The submission was rejected as Magna
Alloys dealt with the enforceability of an agreement in restraint of
trade. In rejecting
the submission, the majority in Brisley, at page
18 C-F, drew a distinction between agreements in restraint of trade
and entrenched
formalities clauses. In restraints of trade, the
enforcement of a limitation on the freedom to trade brings into
collision, two
fundamental considerations of public policy. These are
sanctity or enforcement of contracts and the policy that everyone
should
be free to pursue a chosen trade. On account of these two
conflicting considerations, covenants in restraint of trade
themselves
contain the nucleus of later being held to be
unenforceable and the parties take this risk upon themselves, Brisley
at 18 para
30.
[45]
The only tension in the application of the Shifren principle is the
paradox in having to choose between an earlier or later
contract and
the application of the principles of freedom and sanctity of
contract.
[46]
Magna Alloys however dealt with covenants in restraint of trade from
a starting point of general principles applicable to all
contracts.
That is that a covenant in restraint of trade, like any other
contract, lawfully concluded, ought to be enforced unless
the
enforcement thereof, at the time of enforcement, would be contrary to
public policy. The fundamental policy consideration is
the principle
of the sanctity of contracts, namely that contracts ought to be
enforced. Although there is no patent nucleus of
a conflict of public
policy considerations, it does not mean that none will ever arise
later. Sanctity of contract has its limitations
which are to be found
in other policy considerations that are present in the enforcement of
such a contract at the time it is sought
to be enforced. Applying
these legal principles to the present case, the limits of the
enforcement of the Shifren principle are
to be found in public
policy. Hence if the Shifren principle is not to be enforced in the
present case, such must be justified
on the basis that the
enforcement would be contrary to public policy. Support for this is
to be found in the minority judgment
of Cameron JA in Brisley at 34G.
[47]
In the present case, the policy choice made in Shifren was to apply
freedom and sanctity of contract and prefer the original
agreement
and thus enforce the entrenchment and formalities clause in the
interests of certainty and to protect against disputes
and
difficulties of proof that arise in oral agreements.
[48]
This approach of limiting the scope of the application of the Shifren
principle, on the grounds that to enforce the principle
would be
contrary to public policy was adopted in a carefully reasoned
judgment of Alkema J in a judgment in Nyandeni Local Municipality
v
Hlazo
2010 (4) SA 261
(ECM). I agree with the reasoning therein and
in particular the conclusion in paragraph 94 on page 280 of the
reported judgment,
save that I would add that whether or not a
contractual term offends public policy is not to be determined solely
by the identification
of a constitutional principle which informs
public policy and which is offended.
[49]
As pointed out by Cameron JA in Brisley, at 34C-D, the courts have
the general obligation which is not purely discretionary
to develop
the common law in the light of fundamental constitutional values. The
inherent power of the High Courts to develop the
common law is
expressly recognised in sections 39(2) and 173 of the Constitution.
The former section provides that the courts,
when developing the
common law must promote the spirit and objects of the Bill of Rights.
In section 172(1) of the Constitution,
a court is enjoined when
deciding a constitutional matter within its power to declare that any
law or conduct that is inconsistent
with the Constitution to be
invalid to the extent of its inconsistency. Section 2 of the
Constitution unequivocally declares the
Constitution to be the
supreme law of the Republic and law inconsistent with it is invalid.
The common law however is recognised
in sections 39(2) and 173 and,
except where inconsistent with the Constitution, remains valid. It is
thus clear that where the
common law conflicts with the Constitution,
to the extent of such inconsistency, the common law is no longer
applicable. Furthermore
in developing the common law, the courts
exercise their inherent jurisdiction and are required to take into
account the interests
of justice, section 173, in the light of
fundamental constitutional values. However, where there are features
of the common law
which are in no way repugnant to constitutional
values, and in respect of which the fundamental values of the
Constitution are
silent, the common law must continue to be applied.
[50]
The principled basis for not enforcing an entrenched formalities
clause, set out in Nyandeni, has been followed in GF v SH
and others
2011 (3) SA 25
(GNP). Although I need not comment on the application
of the legal principles underlying the basis for defining their
limitation
of the enforcement of the Shifren principle in Nyandeni
and GF, I accept as correct such basis.
[51]
The second settlement was not confined only to the sale of business
agreement. It is a compromise of disputes that had arisen
not only
under the sale of business agreement, but also disputes that were
intertwined therewith which arose from the dairy farming
operations
conducted by the first defendant with its cattle on the farm prior to
the effective date. The second settlement, if
enforced and given
effect, would not only affect the legal consequences of the original
agreement but would also bring to a conclusion
the Magistrates' Court
litigation and settle the other disputes arising from collateral
agreements in relation to the additional
dairy cows placed on the
property prior to the effective date by the purchasers and expenses
incurred with hospitality afforded
to Mr Visser's brother.
[52]
Thus the effect of the second settlement goes beyond merely an
alteration of legal consequences of the original agreement.
Agreements in relation to the Magistrates' Court proceedings and the
other financial transactions and disputes arising therefrom
fall
outside the scope of the original agreement. These agreements were
not subject to entrenched formalities clauses. The second
settlement
was not only a comprehensive agreement which disposed of all of these
disputes but was indivisible; it did not separately
identify parts of
the settlement sum as relating to individual disputes. The figure was
derived no doubt by considering the net
effect of all the disputes
and claims made by each of the parties against the other.
[53]
Arising from this there are three public policy considerations which
are arguably offended by giving effect to the Shifren
principle in
the present matter.
[54]
The first is that there should be an end to litigation, Boshoff v
Union Government 1932 (TPD) 345, Firestone SA (Pty) Ltd v
Gentiruco
AG
1977 (4) SA 298
(A), Minister of Justice v Ntuli
[1997] ZACC 7
;
1997 (3) SA 772
(CC) and African National Congress v United Democratic Movement and
others (Krog and others intervening)
[2002] ZACC 24
;
2003 (1) SA 533
(CC) at 541 para
14. By not giving effect to the second settlement, the Magistrates'
Court proceedings will not be finally disposed
of or brought to an
end.
[55]
The second ground of public policy is that parties to disputes are to
be encouraged to avoid litigation and the expenses, delays,
hostility
and inconvenience that it usually entails, by resolving their
differences amicably. By reason of this public policy consideration
and in order to encourage full and frank discussions to arrive at
such a resolution, evidence of such negotiations and admissions
made
in such discussions are not admissible in ensuing litigations if the
negotiations fail, Naidoo v Marine & Trade Insurance
Co Ltd
1978
(3) SA 666
(A) at 677 C-D. Giving effect to the Shifren principle in
the present matter will discourage not only the settlement of the
disputes
that have arisen in the sale agreement but reopen the
Magistrates' Court litigation.
[56]
This is not to say that agreements, aimed at settling litigation or
bringing litigation to an end, are never subject to the
Shifren
principle. One may well conceive of cases in which there is
particularly acrimonious litigation and the parties convene
a
settlement discussion but, by reason of mutual mistrust and
hostility, do so on the prior understanding and agreement entrenched
if needs be, that notwithstanding whatever might be discussed orally
at such settlement meeting or negotiations, there will be
no
settlement agreement unless and until same is reduced to writing and
signed by the parties or their representatives. In such
an instance,
the public policy considerations would weigh in favour of enforcing
the Shifren principle.
[57]
Thirdly if effect were to be given to the entrenched formalities
clause, the principles of freedom and sanctity of contract
would be
violated. This is not in respect of the tension or paradox to which I
have referred to above in relation to the agreement
insofar as it
varies the legal consequences of the original agreement. This would
be a violation of those principles in relation
to the agreement
insofar as it relates to the settlement of the Magistrates' Court
litigation and the disputes which are outside
the original agreement
and relate to collateral agreements. In respect of agreement relating
to these disputes, the parties have
not taken upon themselves
entrenched formalities.
[58]
Thus the third question is to be answered in the defendants' favour.
The Shifren principle must yield to the public policy
considerations
requiring the enforcement of the second settlement agreement.
[59]
Furthermore and in any event, should I be wrong in giving effect to
the second settlement agreement, the plaintiffs have two
other
difficulties. These are the first settlement agreement and the
plaintiffs' own performance.
[60]
The first settlement agreement in any event complies with the
entrenched formalities clause. The plaintiffs' claim of R413
673,72
ignores payments totalling R277 000,00, acknowledged by the
plaintiffs as having been received. R25 000,00 was received
in April
2007 as part of a payment of
R225
000,00 in respect of which only R200 000,00 was credited to the first
defendant
as a deposit. A further R10 000,00 was received on 13 July as were
two further payments of R142 000,00 and R100 000,00
received on 7
December 2007 and 13 December 2007 respectively. To that ought to be
added the value of the credit for feed mixer
which was promised in
the first settlement agreement. The evidence of all the parties was
that this amount was R70 000,00. There
is too a further credit by way
of a reduction of part of the purchase price assigned to the tractor.
The parties agreed this amount
in the sum of R10 000,00. A further
credit in the sum of R51 428,57 ought to be given by reason of the
fact that 400 tons of fodder
of the 700 tons stipulated was delivered
and lastly there is admitted credit of R14 830,90 in respect of a
duplication of charges
applied to the defendants that ought to be
given.
[61]
After applying these credits, in the light of the first settlement,
the first defendant has paid an amount in excess of R9
585,00 over
and above the plaintiffs' claims.
[62]
The plaintiffs' formulation of their claim completely ignores the
first settlement agreement and the credits due which I have
highlighted above. The claim is for what is calculated on the terms
of the original agreement without any regard to the credits.
Even if
I were to disregard both settlement agreements and the credits, the
plaintiffs' own performance which has emerged from
four days of
evidence cannot be ignored. On the terms of the original agreement,
the plaintiffs have not properly performed. In
particular the
plaintiffs did not deliver a tractor in the condition it ought to
have been, the plaintiffs have retained possession
of the feed mixer
and they have failed to deliver the agreed quantity of 700 tons of
fodder.
[63]
The sale agreement being synallagmatic, the first defendant's
obligation to pay the purchase price is reciprocal to the plaintiffs'
obligation to deliver the purchased subject matter. Having not
rendered full performance, the plaintiffs cannot demand full
performance,
by reason of the exceptio non adimpleti contractus. A
plaintiff who has not rendered full performance in a synallagmatic
contract
may claim reciprocal payment of a reduced contract price, in
certain circumstances where such claim might be equitable. In such
a
claim the plaintiff the onus of quantifying the reduction, BK Tooling
(Edms) Bpk v Scope Precision Engineering (Edms) Bpk
1979 (1) SA 391
(A) at
435
A.
[64]
If the settlement agreements are to be disregarded, as contended by
the plaintiffs, the reductions therein of the obligations
of the
first defendant, in relation to the amount of the purchase price,
must thus be disregarded. However the settlement agreements
also
reduce the performance obligations of the plaintiffs and release them
from the consequences of their admitted deficient performance
in
relation to the tractor, feed mixer and fodder. The consequences
beneficial to the plaintiffs must similarly be ignored. The
plaintiffs are thus in the position of demanding full performance
from the defendants, of the first defendant's obligations in
the
original sale agreement, without having rendered, or tendered, full
performance themselves. They claim the full purchase price
without
there being any reason, other than the settlement agreements which
they seek to have disregarded, why they should be excused
from full
performance. Furthermore, the plaintiffs fail to make any attempt to
quantify the value of a reduced contract price which
takes into
account the deficiency in their performance. As such the claim should
fail.
[65]
Accordingly I grant judgment for the defendants with costs.
J
R PETER ACTING JUDGE
SOUTH
GAUTENG HIGH COURT, JOHANNESBURG
Appearance
for Plaintiffs:
Mr
Z Omar, Zehir Omar Attorneys, Springs, Mark Anthony Beyl Attorneys,
Johannesburg
Appearance
for the Defendants:
Ms
D M Lundstrom, instructed by Trevor Swarts Attorneys, Johannesburg
Date of hearing:
20
and 21 April 2011, 3 May 2011, 23 June 2011
Date
of judgment: 30 November 2011